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So what is he suggesting? Should they not release new consoles with more power? The market has been stagnating for quite some time now, new hardware helps to infuse new life into the gaming industry.

Sure the consoles will be expensive at start, developers probably won't be able to use full power of the consoles at the beginning, I mean the 360/PS3 have only recently been showing what they are truly capable of. Plus if the dev costs are high, it will only mean that less shovelware and better games which are more likely to sell.